As a result of the Coronavirus Aid, Relief & Economic Security (CARES) Act, the Federal Reserve has created the Main Street Lending Program (MSLP) to provide up to a total of $600 billion in financing for small and medium size businesses who were in sound financial condition before the onset of the COVID-19 pandemic.
To implement the program, the Federal Reserve Bank of Boston has set up three Main Street Loan Facilities – Main Street New Loan Facility (MSNLF), Main Street Priority Loan Facility (MSPLF) and Main Street Extended Loan Facility (MSELF), each offering a different type of MSLP loans – to purchase participations in loans originated by eligible lenders. The loans are all similar, but each have slightly different requirements.
Main Street Lending Program Loan Types and Loan Limits:
MSNLF Loans: Will range from $500,000 to $25 million. The loan amount cannot be more than four times the borrower’s adjusted 2019 EBITDA, when added to borrower’s outstanding and undrawn available debt. The lender can sell 95% of the loan to MSNLF and must retain 5%.
MSPLF Loans: Will range from $500,000 to $25 million. The loan amount cannot be more than six times EBITDA when added to borrower’s existing outstanding and undrawn available debt. The lender can sell 85% of the loan to the MSPLF and must retain 15%.
MSELF Loans: Will range from $10 million to $200 million. The loan amount can be either 35% of the borrower’s existing outstanding and undrawn available debt, or an amount that is no more than six times the EBITDA when added to existing outstanding and undrawn available debt. The lender can sell 95% of the loan to the MSELF and must retain 5%.
Main Street Lending Program Eligibility:
In order to be eligible for a Main Street Lending Program loan, a business must:
- Have been established before March 13, 2020.
- Not be an ineligible business according to the SBA regulations.
- Have no more than 15,000 employees OR 2019 annual revenues of no more than $5 billion.
- The SBA’s affiliation rules apply in determining the employee and revenue count.
- In counting employees, the MSLP advises businesses to refer to SBA regulations by counting all full-time, part-time, seasonal, or otherwise employed person, excluding volunteers and independent contractors.
- Have been created or organized in the U.S. with significant operations in and a majority of its employees based in the U.S.
- Not also a participant in one of the other Main Street Loan Facilities, nor the Primary Market Corporate Credit Facility. Businesses that have received support through the SBA Paycheck Protection Program (PPP) are eligible to receive Main Street loans.
- Not have received specific support pursuant to the CARES Act (Subtitle A of Title IV for air carriers, air cargo, and business critical to national security).
- If a borrower has outstanding loans with the eligible lender as of December 31, 2019, such loans must have an internal risk rating equivalent to “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system on that date.
- Lenders are expected to conduct an assessment of each potential borrower’s financial condition at the time of the application.
- The following certifications and covenants will be required from borrowers:
- Borrower must commit to refrain from paying the principal balance of or interest on any debt until the Main Street loan is repaid in full, unless the debt or interest payment is mandatory and due.
- Borrower must commit that it will not seek to cancel or reduce any of its committed lines of credit with the Main Street lender or any other lender.
- Borrower must certify that it has a reasonable basis to believe that, as of the date of origination of the Main Street loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.
- Borrower must commit to following compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act, except that an S-corporation or other tax pass-through entity that is an eligible borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings.
- Borrowers must certify that it is eligible to participate in the MSLP, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.
How to Apply for a Main Street Lending Program Loan:
Once the MSLP is operational, borrowers can apply for program loans by contacting an eligible lender. The MSLP is expected to be operational in the coming week.
Helpful Links for MSLP Term Sheets:
Other COVID-19 Relief Loan Options:
The SBA is still currently processing applications under the Paycheck Protection Program and the Economic Injury Disaster Loan Program. Please contact our office for more specific information.
If you need assistance applying for a Main Street Lending Program loan or would like more information about this program, please call our Green Bay business attorneys today at 920-499-5700.